Tesla Motors posted an unexpected profit and said it expects to get through the rest of the year without raising cash, easing one concern for investors as it expands production of electric cars.
The profit, Tesla's first in eight quarters, boosted its shares more than 4 per cent in late trading Wednesday after they slumped 16 per cent this year. It also provided welcome vindication to chief executive Elon Musk, who in an August e-mail obtained by Bloomberg pushed workers to cut costs, deliver every car possible and drive the results into positive territory.
“It would be awesome to throw a pie in the face of all the naysayers on Wall Street,” Mr Musk wrote.
The pie Mr Musk delivered Wednesday included some unconventional ingredients, chief among them $139 million in the sale of zero-emission-vehicle credits to other car-makers who need them to meet California’s clean air rules. In the previous quarter, Tesla said they “recognised an insignificant amount of ZEV credit revenue” and didn’t provide a number.
While Mr Musk demonstrated Tesla’s ability to temper its cash burn during the quarter, the spending will increase markedly in this year’s final three months under the demands of preparing the Fremont, California factory for Model 3 production and building out the gigafactory for battery production east of Reno, Nevada. Tesla reaffirmed that battery cell production will begin later this year.
The ZEV credits of $139 million were “well above” the $30 million estimated by UBS, wrote Colin Langan of the Swiss bank, one of the few analysts to predict a profit. Still, Tesla’s “cash burn likely returns” in the fourth quarter and beyond with an expected spike in capital expenditure, the UBS analyst wrote.
Cash Cushion
Analysts questioned Musk on a conference call about when the Palo Alto, California-based company would needto raise cash. Mr Musk said the company doesn’t need more money to get the Model 3 to market. The company might raise cash to “de-risk” the business and keep a cashcushion to shield it in case of an unexpected negative event like a global macroeconomic slowdown, he said.
Mr Musk also said that Tesla may not have to raise more money even if the deal to acquire loss-making SolarCity is approved by shareholders November 17th. The installer of rooftop solar panels may even contribute cash to the business in the fourth quarter.
“Do not take this to the bank,” Mr Musk said. “This is not a promise. This is like - this is what appears to be the case. So contingent upon shareholder approval, we expect SolarCity to be somewhere between neutral and a cash contributor in the fourth quarter.”
Tesla’s positive free cash flow of $176 million in the quarter is helpedby the fact that the company’s capital expenditures budget is heavily loaded tothe fourth quarter. Tesla spent $759 million in the first nine months of theyear and plans to spend more than $1 billion in the fourth quarter.
Model 3
Tesla said it will deliver just over 25,000 cars in the fourth quarter, after a final third quarter delivery count of 24,821. That will bring Tesla to 79,033 vehicles for the year. Tesla says it will make 500,000 cars a year in 2018.
The Model 3, slated to begin at $35,000 before government incentives, is key to Tesla’s plan to expand to a wider market for its battery-powered autos. Enthusiasts stood in line at stores around the world to place $1,000 reservations for the Model 3 when it was revealed in late March. In May, Tesla said it had received roughly 373,000 pre-orders for the car, but has not updated that figure since.
The reservation number for the Model 3 has been of key interest to analysts, who tried once again to get Mr Musk to update the figure. Mr Musk declined, saying it is “not something that is a figure of merit in any way” and noting that the only promotion of the Model 3 to date were some tweets and a web cast.
The Model 3,scheduled for deliveries in the second half of 2017, has already sold out in advance for its first 12 months of production, and Mr Musk said he doesn’t see the point of actively trying to sell the vehicle.
“When somebody comes into our store to buy a Model 3, we say, well, why don’t you buy Model X or an S instead?” said Mr Musk. “So we anti-sell the 3. Still a lot of people order the 3, but whatever.”
Bloomberg